The latest Cabinet Office estimate puts the government's target of achieving a primary balance surplus in fiscal 2020 further in doubt. The projected deficit as of the target year increased by ¥2.8 trillion from the previous estimate just six months ago, as tax revenue fell short of the government's plan due to a fallback in corporate profits and slowing growth in people's income. Even the dire projection is based on a rosy scenario of Japan's economy in the coming years maintaining a level of growth never achieved in the past two decades. The Abe administration maintains that there will be no fiscal consolidation without economic growth, but the figures suggest that its policy has not worked to make the government's primary balance surplus goals more credible.
Since the 1990s, Japan has not had a surplus in the primary balance of the national and local governments combined — a condition where the government can pay for its annual policy-related expenses out of its basic income such as tax revenue without incurring new debts. The 2020 target is deemed a first step in the efforts toward fiscal rehabilitation. But according to the Cabinet Office estimate in late January, which is updated every half year, the nation is now projected to incur a primary balance deficit of ¥8.3 trillion in fiscal 2020 — compared with ¥20 trillion in fiscal 2016 and ¥13.8 trillion in 2018.
The administration of Prime Minister Shinzo Abe has placed priority on economic recovery — and twice postponed hiking the consumption tax to avert stalling the fragile and uneven growth under his watch. But his scenario of rebuilding the government's fiscal health through increased tax revenue on faster growth of the economy has hit a wall. In the fiscal year to March, tax revenue is projected to fall short of the government's projection as the yen's appreciation for much of last year — until Donald Trump's election as U.S. president in November — reduced the earnings of export-oriented businesses. In updating the primary balance estimate, the Cabinet Office expected the impact to continue to hurt tax revenue in coming years, along with sluggish growth in consumption tax revenue due to weak consumer spending.